Q1 2023 Excelerate Energy Inc Earnings Call
Participants
Craig Hicks; VP of IR & ESG; Excelerate Energy, Inc.
Dana A. Armstrong; Executive VP & CFO; Excelerate Energy, Inc.
Daniel H. Bustos; Executive VP & Chief Commercial Officer; Excelerate Energy, Inc.
Steven M. Kobos; President, CEO & Director; Excelerate Energy, Inc.
Christopher Robertson
Michael Jacob Blum; MD and Senior Analyst; Wells Fargo Securities, LLC, Research Division
Presentation
Operator
Hello, and welcome to the Excelerate Energy First Quarter 2023 Earnings Conference Call. My name is Lauren, and I will be coordinating your call today. (Operator Instructions)
I will now hand you over to your host, Craig Hicks, Vice President, Investor Relations and ESG, to begin. Please go ahead.
Craig Hicks
Good morning, everyone. Thank you for joining Excelerate Energy's First Quarter 2023 Financial Results Call. Participating on the call today are Steven Kobos, President and Chief Executive Officer; Dana Armstrong, Executive Vice President and Chief Financial Officer; and Daniel Bustos, Executive Vice President and Chief Commercial Officer.
Our first quarter 2023 results press release and presentation were released yesterday afternoon and can be found on our website at ir.excelerateenergy.com. I would like to remind everyone that we will be making forward-looking statements on this call that involve a number of risks and uncertainties. Our actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update or revise them. Today's remarks will also refer to certain non-GAAP financial measures. We have provided a reconciliation to the most directly comparable GAAP financial measures at the back of the presentation.
Now I'd like to turn the call over to Stephen Kobos, Chief Executive Officer of Excelerate Energy.
Steven M. Kobos
Thanks, Craig, and thank you all for joining us this morning. On today's call, I will focus my remarks on our first quarter financial results, the current state of the global LNG market, and progress on our commercial opportunities. Dana will then walk through the details of our quarterly financial performance before we open up the call to your questions.
Excelerate Energy delivered solid financial and operational results in the first quarter. These were in line with our expectations. As we approach the midpoint of the year, we remain focused on executing our strategic objectives, and we are well positioned to pursue new commercial opportunities.
Over the last 12 months, the increased demand for FSRUs and LNG supply has continued to influence discussions on energy policy in both Europe and the Global South. As a leading provider of integrated LNG solutions, we are proud of the pivotal role Excelerate Energy is playing in strengthening energy security for countries around the world while supporting their transition to a clean energy future. We look forward to continuing our efforts as we scale our portfolio of strategic assets and expand into new and existing markets around the globe.
With that, let's turn to our results and the highlights for the first quarter. Excelerate delivered another solid financial performance during the first quarter. We reported $31 million of net income and $80 million of adjusted EBITDA. This strong start to the year is a positive step towards achieving our financial guidance that we shared with you in March.
On the commercial front, our time charter with the Federal Republic of Germany for the FSRU Excelsior commenced in late February. We remain committed to supporting the German government as it procures alternative gas sources and works to advance its development of renewable energy.
In April, we took advantage of the opportunity to suspend temporarily our charter with the German government. This was so we could deploy the FSRU Excelsior to provide regasification services at the Bahia Blanca terminal during the Argentine winter. As expected, regasification services at the Bahia market began earlier this month.
Other notable highlights include the closing of our amended and restated $600 million senior secured credit facility in March and the purchase of the FSRU Sequoia in April. Dana will provide more insights on this transaction in just a few moments.
Lastly, on May 9, the Excelerate Board of Directors declared another $0.025 dividend per share, reaffirming our commitment to returning capital to shareholders.
Next I'll share some perspectives on the current state of the global LNG market. In Europe, the demand for FSRUs is being driven by countries that prioritize energy security in preparation for the upcoming winter. However, milder-than-expected winter has resulted in European natural gas inventories remaining at levels above historical averages. Current inventories are approximately 60% full compared to an average of approximately 45% over the last 8 years. As Europe prepares for the '23/'24 winter season, the European Commission is targeting storage levels to be at approximately 90% capacity by November 1 of this year.
Additionally, the market has seen benchmark LNG prices decline when compared to the highs of 2022. These lower LNG prices have enabled countries like Argentina, Bangladesh and other Asia Pacific countries to resume spot purchases in the first quarter of this year. Although the macro drivers vary between regions, we expect to see healthy global demand for LNG in the second half of 2023. Excelerate is committed to helping countries in both Europe and the Global South access LNG supply necessary to meet their evolving energy needs.
This continues to be the case in Bangladesh, where just last week we were awarded our second LNG cargo this year. We are also continuing to advance negotiations with Petrobangla for our planned Payra project. This includes discussions on the term sheet and a long-term SPA.
And as we mentioned on our last call, we continue to advance financing options and evaluate potential equity partners. Across our global footprint, we continue to see the environmental and social impact of our operations. Excelerate's LNG deliveries displace diesel, fuel oil and coal, resulting in cost savings and reduced emissions. Our FSRUs in Bangladesh deliver approximately 20% of the country's total gas supply.
Since we introduced LNG to Bangladesh in 2018, the government has had increased confidence to move forward and cancel plans for numerous coal-fired power plants. And in Brazil, our operations serve as a reliable backstop to the country's energy system for which intermittent renewable energy contributes approximately 85%.
The flexibility and reliability of LNG in these countries allow businesses from large industrial users to small- and medium-sized enterprises to thrive and grow their operations. These are just a few examples of the tangible impact we are making in countries around the world. We look forward to sharing more details on our efforts in our upcoming sustainability report, which will be published later this year.
In closing, as a global energy company, Excelerate is focused on enhancing energy security and accelerating the transition to a clean energy future. Our strategic priorities remain operating a profitable and growing fleet of FSRUs, growing our existing regasification business, expanding our downstream gas sales customer base in existing markets, leveraging our global presence to enter new markets, and managing a diversified portfolio of LNG supply.
Now I'll turn the call over to Dana to walk through our first quarter financial results.
Dana A. Armstrong
Thanks, Steven, and good morning, everyone. We are pleased with Excelerate's performance for the first quarter of this year, and we remain on track to execute within the guidance we provided on our last call. For the first quarter, our adjusted EBITDA was $80 million, a 27% increase over the first quarter of last year and a decrease of $10 million as compared to the fourth quarter of last year. The year-over-year increase was driven primarily by higher margins earned on our gas sales contracts in Brazil, along with gas sales into Finland in the first quarter of this year as well as higher FSRU services revenue driven by our new regas contracts in Finland and Germany.
As compared to the fourth quarter of last year, the sequential decrease was driven primarily by the scheduled dry dock for the FSRU Excelsior, along with higher planned maintenance expense at our terminal in Bangladesh. This sequential decrease was partially offset by margin overperformance from our Brazil gas sales contracts. In recent weeks, we closed on 2 transactions, which has strengthened our balance sheet and financial position.
Last quarter, we discussed our amended and restated senior secured credit facility, which gives us enhanced flexibility and leaves us better position to finance our growth and business development initiatives. The facility consists of an amended $350 million revolving credit facility and a new $250 million term loan. The amended revolver has a 4-year tenure that matures in March 2027, which is an extension from the original maturity of April 2025.
Last month, we completed the purchase of the FSRU Sequoia, one of the most capable vessels in our industry, for $265 million using the proceeds from the term loan and cash on hand. Acquiring the Sequoia at a price well below current market value ensures that the vessel will remain an integral part of the Excelerate fleet for the long term. We look forward to continuing to utilize the vessel to provide flexible access to cleaner and more reliable energy for our customers. As a result of the vessel purchase, Excelerate will cease to incur roughly $28 million of annual rental expense for the Sequoia bareboat charter.
Now let's turn to our liquidity and balance sheet. As of March 31, Excelerate had $530 million of cash and cash equivalents on hand, $42 million of letters of credit issued, and no outstanding borrowings under our revolver. Our gross leverage ratio was 2.8x at the end of the first quarter compared to 2.2x at the end of the fourth quarter. On a net debt basis, our leverage ratio was 1.1x.
Next I'll share a few thoughts on our capital allocation and our financial outlook. Total CapEx for the quarter was $15 million. This includes roughly $7 million of maintenance CapEx, which is mostly related to the dry dock activity. The additional $8 million of growth CapEx was primarily related to customer-requested winterization upgrades for Finland. Maintenance CapEx for the year is still expected to range between $15 million and $35 million.
As discussed on the last call, growth CapEx spend for 2023 beyond the $265 million that was spent in April to purchase the Sequoia will be disclosed either as incurred or subsequent to the execution of binding agreements.
We are committed to maintaining a prudent and disciplined approach to capital investments, which means prioritizing investment opportunities that maximize the returns of our assets given the increased competition globally for FSRUs and LNG infrastructure. Looking ahead, based on our results to date, we are reiterating our financial guidance for 2023. For the full year, we expect our adjusted EBITDA to range between $320 million and $340 million. We're confident in our ability to meet this guidance range.
With that, we'll open up the call for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Christopher Robertson from Deutsche Bank.
Christopher Robertson
Steve, this one might be for you. Just in terms of the Payra project in Bangladesh, you mentioned here finalizing the term sheet. Can you talk about kind of the time line after that's finalized in terms of the pipeline development and maybe the construction time line around that? And just how do you foresee the project developing from here?
Steven M. Kobos
Thanks, Chris. I appreciate the question. I think I'm going to hand it off to you, Daniel Bustos, our Chief Commercial Officer, in a little bit, but I would elaborate on Payra, one of the comments we -- or one of the remarks I just made. We have just recently signed a mandate letter with an international multilateral for a significant portion of the debt required for that project. So that's one of the key advancements that we've made in the past few weeks. But Daniel, I'll let you elaborate on the negotiations and timeline.
Daniel H. Bustos
Thank you, Steven. Chris, thank you for the question. On Payra, we are working on several parallel work streams as we continue optimizing the onshore pipeline, which is going to be one of the critical factors. The demand of LNG in Bangladesh keeps growing and is actually exceeding the initial expectations. And the Bangladeshi government has asked us to optimize the onshore route in order to access a larger market for the Payra project potentially earlier on the time. What that is bringing is still some of the timelines are a little bit fluid. But with the execution of the term sheet, we expect to have a much clearer picture in exactly when we're going to be FID and when we're going to start service.
But more importantly, we're advancing on engineering and design. The offshore part of the project, which is more defined, is well advanced, and we're working on identifying and negotiating with the critical vendors and partners for the project. Again, we're very excited about it.
Christopher Robertson
Okay. Yes. Great color on that. Just a second question here as it relates to the gas sales part of the business in terms of the revenue contribution. Should we think about that in terms of maybe it would strengthen counter-seasonally? And what I mean by that as global LNG prices have come down and are a little bit more stable, would that lead more gas sales in the coming quarters than it did in the first?
Steven M. Kobos
I'll take that one, Chris. I mean a variety of factors across the whole global footprint, obviously. But I think the biggest point that I would make and not just the typical counter-seasonality that you used to see in the LNG before the conflict, but there is some resumption of that as the Global South has resumed these spot purchases. And I think as we mentioned earlier, we did have our second spot sale into Bangladesh just this past week.
So yes, I do think some of those historic rhythms that you would have seen in the past between north and south have returned as we've seen some softening in the global LNG price.
Operator
(Operator Instructions) Our next question comes from Michael Blum from Wells Fargo.
Michael Jacob Blum
I wanted to just stay on Payra for a minute. Wondering if you have some -- just like a ballpark cost at this point for the project, assuming it goes forward. And any updated outlook on what the economics could look like?
Steven M. Kobos
Sure, Michael, and thanks for joining us. Appreciate it. I would just comment what I believe I said that the mandate letter we signed on the financing was for a significant portion of the debt that still contemplates a bit of scope or variation, especially on the onshore part of the project since the scope hasn't been finally determined.
Daniel, do you want to add any color for Michael?
Daniel H. Bustos
Yes, Michael, this is one of the very interesting positions that we have in Bangladesh and, for example, on the design of the onshore pipeline, which is a substantial part of the investment, we actually don't have exactly what the level of participation we're going to have. And the reason for that is because we're collaborating with Petrobangla which is our counterparty to design the pipeline that they need. That also is going to give us ample flexibility to take an optimal position on the investment. At this point, we're not closing on a position exactly where we want to see it, but we are aiming clearly have a good level of participation without exceeding our capital involvement.
In terms of return, I think as Craig has pointed out and we have pointed out in the past, we still aim to have 3x to 5x EBITDA. We see, of course, the lower EBITDA multiples related to the gas sales too. But I think that there's still a healthy range and we feel comfortable that we can execute on it yet again on the combination of infrastructure plus gas sales.
Michael Jacob Blum
Okay. Great. And I also wanted to just ask, I know you're not providing a specific growth CapEx estimate. But wondering if you could just kind of bucket the opportunities that would drive that growth CapEx number throughout the year? That would be helpful.
Steven M. Kobos
Dana, I always let you comment on this one.
Dana A. Armstrong
Yes. And unfortunately, Michael, there's not a lot of information we can share at this time. I mean, obviously, we purchased our Sequoia. You know that and that will impact our CapEx in the second quarter. But in terms of growth CapEx beyond the maintenance CapEx that we've already guided, we really don't have anything we can share at this time. As I stated on the call, when we have something we can share, we will definitely be happy to share with you guys. But unfortunately, we just -- we're not in that position right now.
Operator
Thank you. We currently have no further questions. So I'll now hand back over to Steven Kobos, President and CEO, for closing remarks.
Steven M. Kobos
Thank you again to everyone who joined us on today's call. We appreciate your interest in Excelerate Energy, and I look forward to providing you with additional progress updates in the coming months. Until then, as always, if you have any questions, please feel free to reach out to Craig Hicks, our VP of Investor Relations. Thank you.
Operator
This concludes today's call. Thank you for joining. You may now disconnect your lines.
